Panetta still isn’t facing up to his Pentagon budget disaster

On Friday, Defense Secretary Leon Panetta will finally reveal how spending at the Department of Defense will be brought into compliance with the 2011 Budget Control Act. Panetta has already said the cuts "would turn America from a first-rate power into a second-rate power," but American taxpayers should not forget three very important things. First, the mad scramble to cut spending is the result of the Obama White House and the Panetta Pentagon deciding to program for the past eighteen months as though the Budget Control Act was not in effect. Second, although the law stipulates that spending reductions apply to all budget lines, it contained a huge opt out that allowed the President to exempt personnel accounts and removed application of the law to a full third of the budget. Third, even if sequestration goes into effect, the spending cuts will only return the base Department of Defense budget to 2007 levels. The wailing and gnashing of teeth by the department are an over-reaction, and conveniently shields it, the White House, and the Senate from criticism that their own choices have made the effect of the cuts more damaging. 

Panetta’s blueprint for the Department, his defense guidance, was issued subsequent to the collapse of the so-called grand bargain between the president and House Speaker John Boehner, after the supercommittee failed to reach an agreement, in the third year of a continuing resolution because the Senate would not pass a budget, and after the President threatened to veto any changes to the act that would reduce DOD’s share of cuts — a threat Panetta supported.  

Yet Panetta’s strategy proceeded on the assumption that DOD will have access to resources it had no basis to expect. He made no budget excursions showing how the Department of Defense would comply with the law if sequestration came into effect, and he forbade the military services from conducting any planning associated with compliance. As a result, DOD has no long term plan. Moreover, it will produce a budget that has not been stress-tested to ensure risks incurred in one part of the force are balanced by capabilities elsewhere.  

Deputy Secretary Ashton Carter defended DOD’s cliff jumping strategy, saying "the reason not to make adjustments too early is — these are not desirable things to do. They’re not good for Defense. So you don’t want to do them until you have to."  So DOD must now incur the entirety of cuts in the final six months of the fiscal year. Could not the effect have been attenuated by anticipating spending reductions and programming them in across the year?  Would not responsible managers have sought to minimize the disruption? Would not shareholders be incensed at such management in a private company?  It is irresponsible for the department not to have made choices that would prudently hedge against the likeliest outcomes.  

The Panetta Pentagon insists the Budget Control Act is a "meat axe approach" of across-the-board cuts that allows no management of the budgeting process. But this is not entirely true. The Budget Control Act gives the president the option of fencing off personnel accounts from any cuts, and the president has exercised that option. Those accounts constitute roughly $200 billion of the $586 billion Defense Department budget.  It is a politically popular move, to be sure, but it dramatically increases pressure on other line items.  

The military’s personnel accounts — pay, medical care, retirement — increased dramatically in the past decade. Military compensation is now higher than the wages of 90 percent of civilians and is, on average, $21,800 higher than the median income for civilians in comparable groups.  Such increases made sense when recruiting forces in the midst of two wars, but they are difficult to justify when the Pentagon plans to shed personnel.  We now have within the defense budget the same "guns vs. butter" tradeoffs we face in federal spending writ large. Spending on personnel is choking our ability to ensure the force has the readiness it needs. Pentagon leaders must face up to the fact that our magnificent all-volunteer force is becoming unaffordable. 

Our country is a very long way from living within our means. Sequestration going into effect will not even reduce our national debt — it will only slow its growth. While the defense budget is not the driver of our national indebtedness, the general austerity required to get our national finances back into balance is likely to keep defense spending essentially flat for the coming decade. 

Rather than decrying Congress as irresponsible, Panetta should produce a budget consistent with sequestration’s $489 billion topline cut and ask Congress for authorization and appropriation to set priorities that will dampen the effect of cuts. Congress should agree, since such legislation will also pin responsibility for whether cuts are a disaster where it properly belongs — with the President and his defense leadership.